If you're in the market for a mortgage, here's what you can do right now to find and qualify for the cheapest possible loan.
Smart move 1. Shop around.
Financing a home is the single biggest financial decision most of us make. You've got to shop for a loan at least as hard as you'd shop for a car or a Caribbean vacation.
Don't take whatever they offer from the bank where you have a checking account or the mortgage broker in a nearby strip mall.
Compare interest rates and fees from dozens of lenders by scouring newspaper ads and Internet sites. Loans offering the lowest rate with fees of $1,000 or less are usually the best deals.
Our extensive database of mortgage rates is a great place to start looking.
Smart move 2. Fix any mistakes on your credit reports.
Your credit score is the single most important factor in determining how much you'll pay for a loan.
That score is based on information pulled from the credit histories maintained by the three, major credit-reporting agencies -- Experian, TransUnion and Equifax.
If there are mistakes on your credit report, and those mistakes hurt your credit score, you'll pay the price in the form of a higher interest rate.
Start by obtaining a free copy of your credit reports from each agency at annualcreditreport.com.
Read the reports carefully, and look for errors. To fix them, start by noting the errors on a copy of the report. Write a letter to the credit bureau explaining the problems and asking them to investigate. Enclose any proof you have, and send the whole thing by certified mail.
Here's a form letter for correcting credit reports that tells you exactly what to say and where to send it.
Smart move 3. Pay your bills on time.
The biggest part of your credit score -- 35% of it -- is based on whether you pay your bills on time.
When you apply for a mortgage, you should have no late payments on your credit report for at least six months.
More than anything, lenders want to know you will pay your mortgage on time every month. If your credit history shows you've skipped a payment or even been a few days late, you're seen as a bigger risk. And risky borrowers pay higher rates -- or they don't get a mortgage at all.
A late payment only weeks or even a few months before applying for a mortgage will be taken particularly seriously.
Smart move 4. Pay down your credit card debt.
Almost one-third of your credit score is based on how much of the available credit you've tapped.
If you owe $6,000 on a card with a $10,000 credit limit, you've used more than half of your available credit -- and that's too much.
You're penalized anytime your debt-to-available-credit ratio climbs above 50%. Reducing your balance to less than half the credit limit on each card will have an immediate and positive impact on your credit score.
Smart move 5. Don't apply for new credit cards or other consumer loans.
Potential lenders will check your credit report when you fill out an application, and those inquiries are noted on your history. Each inquiry can lower your credit score by up to 12 points.
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